World reports

Stocks to watch

AAP

2013-02-14

It's more good news for those travelling overseas and more bad news for manufacturers, farmers, local tourism operators and exporters.

The Aussie dollar is expected to trade between 98.25 US cents and 107.00 cents for the remainder of 2013.

By comparison it has been between 95.82 US cents and 108.57 cents for the past 12 months.

Ten of the 18 foreign exchange professionals surveyed by AAP expect the Aussie to dip below $US1.00 or parity, some time in 2013.

The US economic recovery gaining pace, a reinvigorated Chinese dragon, and an end to the local interest rate reduction cycle are factors that will keep it strong.

CMC Markets senior trader Tim Waterer said a lack of cash rate cuts by the Reserve Bank of Australia has traditionally helped support the Australian dollar.

The RBA made four interest rate cuts reductions in 2012, the most recent was in December, by a quarter of a percentage point to three per cent.

"We will get through the rest of the year with one RBA rate cut or no rate cuts, I don't think the interest rate is going to fall much below 2.75 per cent," Mr Waterer said.

"I think we will see a stronger second half of the year in terms of commodity prices as a result of the improving Chinese economy."

Mr Waterer said the US and Europe, both with high government debt levels, not lurching from crisis to crisis will also help the Aussie.

"I think we'll get a correction at some point but it'll be minor, it won't be the panic selling we witnessed in 2012," he said.

"We still have a few more things to deal with, in terms of the US debt ceiling, but once again any dramas we see in 2013 will pale into insignificance compared to what was witnessed last year when there was a legitimate concern that the euro zone will dissolve."

AMP chief economist Shane Oliver said another factor that will keep the Aussie dollar above parity will be the continuing attempts by the US and Japanese central banks to stimulate their economies.

Both the US Federal Reserve and the Bank of Japan can't cut their interest rates because they are at, or near, zero per cent.

The only thing for them left to do is embark on a program called quantitative easing - buying government bonds from commercial banks to increase their liquidity and encourage lending.

"The reality is that America has been printing money which is expanding its money supply and Japan is doing the same," Dr Oliver said.

"That in turn has a downward impact on the US dollar and also the Japanese yen, all those things maintain upwards pressure on the Aussie dollar."

Dr Oliver said there are still risks the Australian dollar could temporarily drop below parity with its US counterpart.

"To get a sharp fall below parity you'd have to get some sort of international growth upset, which may occur periodically, we always get bouts of worries.

"But as a central case for year-end I don't see that happening."

The median forecast for the currency's value at the end of the year is 103.50 US cents, the survey showed.